How to do Tax-free SIP?

What is a Systematic Investment Plan?

A systematic Investment Plan commonly known as SIP is a method of investing your money in different investment schemes. One needs to invest a fixed amount over regular intervals such as monthly, quarterly, semi-annually, or yearly. 

Rather than investing your money in a lump-sum manner, you can choose to invest through SIP and the amount of money can be as low as Rs. 500 depending upon the nature of the scheme.

SIP Calculator

I know my investment amount I know my goal amount

Monthly SIP Yearly SIP Lumpsum

I want to invest Pro Tip

Financial experts suggest that a person should invest 10-15% of their monthly income for long-term financial growth

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I want to invest for Pro Tip

Financial experts suggest that individuals should ideally invest for a period of 5 to 10 years, or even longer, to maximize the benefits of compounding and navigate market fluctuations effectively

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Expected return Pro Tip

Top 25% of investors consistently generate more than 12% return

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Total Wealth ₹22.4 L

View Plans

I want to save

I want to invest for Pro Tip

Financial experts suggest that individuals should ideally invest for a period of 5 to 10 years, or even longer, to maximize the benefits of compounding and navigate market fluctuations effectively

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Expected return Pro Tip

Top 25% of investors consistently generate more than 12% return

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Monthly Investment ₹22.4 L

View Plans

Top Funds with High Returns (Past 7 Years)

19.3%

High Growth Fund

15.61%

Accelerator Mid-Cap Fund II

15.48%

Opportunities Fund

Benefits of SIPs

1. Power of Compounding

   As opposed to lump sum payment, SIP investment is a disciplined way of investing your money which ensures that your investments are on constant growth. Due to your initial investment and the compounded returns over time, the money you invest over time increases to a large corpus.

2. Low Initial Investment

   As said earlier, one can start investing in their choice of funds through SIP with the amount as little as Rs. 500. This is one of the affordable investing methods that ensures offer you higher returns. It is suggested to explore best SIP plans list before taking investment decision.

3. Rupee Cost Averaging

   While investing through SIP, one can avail of the benefit of rupee cost averaging. Rupee cost averaging allows you to benefit from market volatility with SIP since your investment amount is consistent over a longer period. The value of each unit is averaged out by the fixed amount you contribute via SIP. To minimize your average cost per unit, you can buy more units when the market is low and fewer units when it is high.

What is Tax-Saving SIP?

Saving taxes on your investment is one of the many benefits of investing through SIP. However, are all SIP tax-free?

Well, SIPs are one of the best tax-saving tools that come with high returns on your investments.

Take a look below to explore some of the investment options for tax saving:

One of the most common tax-saving investment schemes through SIP is ELSS. Equity Linked Savings Scheme or ELSS Funds are tax-saving equity funds that come with a mandatory lock-in period of three years. Investing your money in ELSS offers the dual benefit of wealth accumulation and tax savings. These funds invest their major portion into equity or equity-related instruments.

Another investment option by which you can save taxes is Unit-Linked Insurance Plans (ULIPS). ULIP is a combination of investment and insurance. One part of the premium paid by the policyholder is used to provide a life insurance cover and the remaining sum is invested. With ULIPs the insured can avail of life insurance coverage as well as tax benefits on the investment returns and premium paid towards the policy under sections 80C and 10(10D) of the Income Tax Act 1961.

Other than these two, the individual also has several other investment options wherein one can save taxes such as Sukanya Samriddhi Yojana, National Pension System (NPS), Senior Citizen Saving Scheme (SCSS), Fixed Deposits & Recurring Deposits.

In order to calculate the benefit amount, SIP calculator is a useful online tool. 

What are the SIP Tax Benefits?

Below-mentioned is the SIP Tax benefits one can avail by investing in different investment schemes:

1. Tax Benefits from investing in ELSS

   By investing in ELSS through SIP, one can save up to Rs1.5 lakhs a year in taxes under Section 80C of the Income Tax Act, 1961. 

2. Tax Benefit from Investing in ULIPs

   The premiums paid for ULIPs are eligible for a tax deduction under Section 80C up to a maximum of Rs 1.5 lakhs. 

ELSS vs ULIP: A comparison

Wrapping it up:

Choosing the right investment channel not only ensures that you grow your money but also makes sure that you do not loase your profits in taxes. Investing through SIPs offer high returns on your investments and can even claim a deduction of up to Rs. 1.5 lakh under Section 80(C) of The Income Tax Act, 1961.

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